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In New York City, Still Going Strong

THE economy of New York City is a bit of a mystery, even at times to the experts. Battered by the 2001 terrorist attack, high inflation and Wall Street employment losses that have never recovered, it nevertheless remains strong, with flashes of downright brawniness.

During 2005, the city's unemployment hovered around 6 percent, slightly above the national average, and an improvement over the 6.8 percent rate the year before. Wall Street bonuses continue to skyrocket, leading to an 8.7 percent increase in personal income tax revenue in the third quarter of 2005 over the same period a year earlier, according to the city comptroller's office, and a 25 percent spike in capital gains taxes, all of which line the city's coffers.

As for the real estate market, the amount of vacant commercial space has fallen in recent months, and in the last quarter of 2005, apartment sale prices remained above the levels of a year ago, even as sales slowed.

In a sign of continued confidence in the city's future fortunes, the number of building permits issued bythe city in the first nine months of 2005 -- the latest figures available from the comptroller's office -- rose 7 percent from the same period in 2004, which meansthat people are still building in anticipation of new-home sales.

"I'd characterize the local economy as relatively strong over all," said Jason Bram, an economist at the Federal Reserve Bank of New York. "Commercial real estate, the securities industry, and thus personalincome and tax revenues, and, to a lesserextent, the labor market are all showing signs of strengthening. The housing market has shown some signs of cooling recently, but remains pretty strong in terms of levels."

The questions that economists, elected officials and others who spend their professional lives gazing into the crystal ball of economics ponder most are: what engine drives the economy, and how long can it last?

These questions are particularly urgent at a time of high heating costs nationwide and high inflation locally, and when many sectors of the economy, like professional services, continue to show sluggish growth or, like construction, have posted losses. In addition, many jobs lost on Wall Street at the beginning of the decade are not expected to return.

But New York is often at odds with the rest of the nation, or at least finds itself at the extremes of national trends, with an ever-frothy real estate market, a tourism industry that depends heavily on foreign visitors and a dependence on the mercurial ways of Wall Street.

The improvement in the city's economy last year was in large part a result of the weak American dollar, which made New York a better bargain for foreign visitors and led to a boom in tourism, and to employment gains in other major industries, like health care and education. During the first 10 months of last year, for instance, the number of jobs in the leisure and hospitality sector grew 3 percent over 2004, while jobs in health and education services rose 2.5 percent, according to the Bureau of Labor Statistics.

The continued decrease in crime has further increased tourism and the willingness of New Yorkers to buy or rent homes in a variety of city neighborhoods, keeping prices high.

But nipping at the heels of all this success is continued inflation, which New Yorkers feel acutely. Consumer prices in New York rose last year about 4.1 percent, above the nation's 3.8 percent, led by the costs of food, housing and gas. Inflation can be felt in every nook of the city, in the deli counters, the rental offices of apartment buildings and the movie theaters.

There are signs that inflation is makingit hard for some people and businesses to stay in New York. The creative fields -- which make up roughly 10 percent of the city's work force -- are particularly affected.

For example, from 2001 to 2004, the number of jobs in New York's motion picture and sound recording industries declined by 36 percent, according to a recent report by the Center for an Urban Future, a research group in Manhattan that analyzes urban policy issues.

The report also pointed out that 20 years ago, New York was the headquarters for half of the world's advertising agencies, but is now home to fewer than a third. Scores of artists have left the city in recent years for cheaper cities like Philadelphia and Seattle, undermining New York's dominance in the fine and commercial arts.

And while the city has continued torecover from Sept. 11 better than economists and officials predicted at the time,the pace of that recovery has lagged be-hind the nation's, with slower growth in economic output and a slower rise in payroll jobs.

Further, while available office space dwindles, the number of people working in those offices has not increased by a corresponding amount, puzzling some economists. "I still don't know why we haven't added more jobs in recent months, especially given how well the commercial real estate market has done," said Barbara Byrne Denham, an economist at Jones Lang LaSalle, a real estate firm.

"Net absorption, which measures the increase in occupied office space, has been strong, but office job growth has been tepid," she said. "This is inconsistent: companies are leasing space but not adding enough jobs to fill the space." Another New York mystery.

While New York has worked hard to diversify its economic base, almighty Wall Street still dictates much of its fortunes. The sleuths of the economy remain as they do at the beginning of every calendar year: skeptical.

In a report by the city's comptroller office released in December, the authors wrote: "The cost pressures and risks facing the national economy are of concern forthe city as well. Since the city's economyis highly dependent on the financial sector, the impact of higher interest rates will be amplified locally. The city's economy is likely therefore to grow more slowly in 2006, despite generally positive leading indicators."